Thank you, Mr. Chairman. Let me make just two or three fairly general comments. First of all, I, too, want to compliment the staff for the paper on inflation dynamics. I think it was very well done. It is important, and we need to take it seriously, and I view it in some sense as a follow-up to some of the work that has been going on at some of the Reserve Banks in recent years. One of the things that I think is important about it is that, at a minimum, it ought to raise a yellow flag about our ability empirically to go from measures like output gaps, or the NAIRU, or other measures of capacity to the determination of inflation. I don’t want to exaggerate that point. I know there are different ways of interpreting it, and I know the work isn’t definitive. But I do, nevertheless, think that we need to think about it seriously and consider it when we discuss the inflation outlook and its relation to economic performance.
Second, with regard to the economic outlook, I indicated at the last meeting that I was somewhat more optimistic than the Greenbook, and that gap has opened up even further. I am more optimistic, although I’m not talking about the current quarter. One way of summarizing my position is that I think the positive effects of higher incomes, lower energy prices, higher equity values, and stable-to-declining interest rates are greater than you apparently do. I say that even though I can readily imagine that the decline in housing activity turns out to be both more protracted and deeper than you forecast it to be.
By the way, as a footnote, if I did the numbers right, back in 1965 and 1966, we did get a decline in aggregate housing starts of better than 20 percent without a recession, although 1966 was considered a mini-recession, or a pause, or something—I’ve forgotten what the exact term was.